Inside the Royal Bank of Scotland

November 21st, 2011

A documentary on which I worked as senior researcher and lead consultant is to be shown on BBC2 nationally on December 5th. The one-hour BBC film charts the rise and fall of the Royal Bank of Scotland, starting with its £21bn acquisition of NatWest in February 2000 and ending soon after its ignominious near-collapse and bailout by the British taxpayer in October 2008. You can watch the full one hour documentary here)

They discuss the culture at RBS, its strategy as it strove to become the world’s largest bank, its over-leverage and impulsive risk-taking, and the shocking mistakes that precipitated its collapse, including the hoarding of toxic CDOs by Connecticut-based subsidiary RBS Greenwich Capital, and the €72bn acquisition of Dutch bank ABN Amro. Fred Goodwin, who as chief executive in 2000-09 was ultimately responsible for these disastrous moves, declined to be interviewed for the programme.

There are also interviews with senior financial journalists and commentators who tracked RBS at the time, including Peter Thal Larsen, former Financial Times banking editor, Gillian Tett, US managing editor of the Financial Times, Jill Treanor, City editor of The Guardian and Daniel Gross, economics editor at Yahoo! Finance and co-host of the Daily Ticker.

One of the more telling quotes used in the film comes from David Appleton, who said:

“Fred had a very impressive intellect but he used that to bully those around him … people were intimidated from speaking their own mind because they feared Fred’s reaction and this created an atmosphere around him that inhibited even the most senior people in the bank [from] expressing their views

To me, this was the cornerstone of the internal reasons for the bank’s collapse.

Goodwin’s “reign of terror” meant that he surrounded himself with “yes” men who rarely challenged his insatiable desire for growth; it also meant his lieutenants were tempted to “push the envelope” to ensure that stretching financial targets Goodwin laid down were met, so they could avoid a “shredding” (and to ensure their own bonuses were enhanced).

The documentary, directed by Colin Murray and produced by Tony Nellany, also features previously unseen footage from Goodwin’s last meeting with shareholders, held in the Assembly Hall of the Church of Scotland on November 20th, 2008. At that meeting private shareholder Mr Blackie asked Goodwin to apologise for the carnage he had caused, saying “I would like to hear you say sorry”. Broadcast cameras were not allowed into the meeting, but we obtained footage of Goodwin’s apology. The Paisley-born chartered accountant responded:-

“Well Mr Blackie. Wouldn’t want there to be any doubt: I am extremely sorry … I echo the sentiments and – I am extremely sorry – extremely sad to be leaving the company at these extremely difficult times… there can be no question other than that I am extremely sorry…”

There is also footage of Goodwin and RBS head of investment banking Johnny Cameron insisting that the bank was not involved in subprime (a claim that was subsequently shown to have been untrue). The same can be said of RBS’s claim, made when it was seeking to raise £12 billion of fresh capital from investors in April 2008, that it had sufficient working capital to survive for another 12 months.

There were plenty of factors at play in the near-collapse of RBS — not all of which are fully explored by the film.

These include the apparent uselessness of its non-executive directors in 2006-08 (none were willing to be interviewed for the film), the abject failure of the Financial Services Authority to block value destructive takeover deals or ensure the bank was better capitalized, the deeply-flawed Basel II regulatory framework, which dangerously skewed banks’ behaviour, and a political and regulatory class, led by ex-chancellor Gordon Brown and his principal economic adviser Ed Balls, who cheered on (and relaxed the rules for) megalomaniacal bank chiefs like Goodwin, seemingly oblivious to the risks they were storing up for future generations.

There are a host of other players who must also share some of the blame for the failure of RBS, including institutional investors who should have done more to rein the bank in, auditors Deloitte who went along with ‘racy’ acquisition-accounting methodologies (and who rumours suggest were “bullied” into signing off the bank’s 2007 accounts), credit rating agencies Standard & Poor’s and Moody’s who gave highly toxic CDOs AAA ratings, and central banks which kept interest rates too low for too long and whose faith in the ability of securitization and derivatives to remove risk from the financial system was wholly misplaced.

In the end of the day, however, there was one guy at the helm at the time RBS was driven at full steam into the iceberg.

The programme was first broadcast on BBC One Scotland on October 17th and repeated on BBC2 Scotland on October 22nd. A BBC press release detailing the UK-wide transmission was issued on November 21st, 2011.

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Posted by Ian Fraser
on Nov 21 2011. Filed under Blog.
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1 Comment for “Inside the Royal Bank of Scotland”

[…] Re: The Times They Are A Changing – 4000 Percent Originally Posted by wobbler What does Wayne Rooney get paid, in relation to that of a junior lower league footballer? What does Brad Pitt get paid, compared to a kid just out of drama school? The top people get the top money. Good point. But in your instance that is more raw market forces. If fans don't buy the cinema-football tickets (mugs) they wouldn't command such undeserving high salaries. But how many people can manage without a bank or a pension? IF you get chance watch the BBC Scottish T.V. programme: The Bank That Ran Out Of Money. See how much Goodwin and comrades was earning while it was going to the wall. The Bank That Ran Ouit Of Money – Shown Nationally On December 5th. […]